CANEXUS CORP 6.5 PCT DEBS T.CUS.DB.D

RE:from Scotia Daily Edge

[Nawaralsaadi]

Thanks for the update. I certainly don’t see the use of a dividend cut with capex spending diminishing by September at the latest. A 50% cut could indeed save the company $40m over 2014, but if that was the plan, raising $150m in January makes no sense. The capex overspend was $90m, they raised $60m in excess of that amount, thus they do have a comfortable cushion to finalize construction and manage ramp up while paying the dividend (which is 100% covered in cash basis using Scotia’s numbers).

Cutting the dividend here will only cloud things in my opinion as it could signal additional delays and issues at the company, further depressing its stock price and fully preventing it from raising equity should it need to at some point in the foreseeable future. Furthermore, what’s the plan Scotia is suggesting? cut the dividend in May 2014 so they may double it in Q4/2014 or Q1/2015?.

Scotia itself is projecting $80m in distributable cash in 2014, rising to $130m in 2015, this means the dividend  payout ratio(including DRIP) would be 121% for 2014 and 74% for 2015, and 100% and 61% on cash basis for 2014 and 2015 respectively. Those numbers don’t argue for an aggressive dividend cut. Canexus will recover all of its overpayments in 2014 by 2015.

I would agree with a dividend cut if the company was to fail in fully contracting NATO this year (a very low probability) or if they have a major capex surprise (again a very low probability). I am quite comfortable that Canexus board will keep the dividend intact as long as they have clear visibility on NATO.  

Regards,
Nawar